As Pallas Partners launches in London, Tracey Dovaston, Matt Getz and Alessia de Quincey provide their predictions in the investigations arena for the coming year.
Overview
2021 continued to be dominated by Covid-19, disrupting traditional approaches to internal and regulatory investigations. As we hopefully emerge from the pandemic, we predict a significant increase in targeted investigations as stakeholders, consumers, prosecutors and regulators apply targeted pressure on a broad range of headline grabbing issues. This will be boosted by the hybrid working world which has demonstrated the attractiveness of speaking up remotely and the practical opportunities for financial services firms and corporates to speed up investigations through the judicious use of remote technology.
Key Expected Areas of Focus
Internal investigations
Culture
We predict that corporates will continue to focus ever more attention on allegations of harmful workplace behaviour including bullying, sexual harassment, racism and other forms of discrimination, a societal and regulatory trend set in 2021. A number of high profile companies have already been in the spotlight – e.g., Rio Tinto[1] and Brewdog.[2]
We expect growing demand for ESG-related internal investigations arising from well-documented growing pressure from investors, activists and, for regulated firms, from regulators. Accusations of “greenwashing” are becoming ever more prevalent.
Whistleblowing
The past couple of years have witnessed a significant rise in whistleblowing cases, encouraged by regulatory and company pressure to improve internal systems and structures and promote a “Speak up” environment. We expect this will continue in 2022. Whilst the EU Whistleblowing Directive (EU) 2019/1937 no longer applies to the UK post-Brexit, multi-national companies will need to consider whether to gold-plate internal investigations procedures to meet the EU’s high standard and the UK is expected to strengthen its own statutory regime.
Crisis Management
When issues arise, firms need to act fast to prevent escalation. Crisis management is key, with greater involvement from HR, Communications and Legal teams (and where serious, involvement at executive and Board level) to ensure a coordinated approach to meaningfully address serious concerns.
Regulatory investigations
Non-financial Misconduct
The FCA received some criticism for its approach to non-financial misconduct. In 2021 (In Forsyth, the Upper Tribunal held that the FCA and PRA had not made out their case that Mr Forsyth had failed to act with integrity, directing the regulators not to impose a financial penalty and re-consider their prohibition orders. In Frensham, while the Upper Tribunal upheld the FCA’s prohibition notice, it noted that his conviction was not sufficient on its own due to the insufficient factual or legal basis linking his conviction to his lack of personal integrity as it applied to his financial services role). We expect the criticism will spur the FCA on to do more – and more rigorous – non-financial misconduct investigations. It will remain a key regulatory priority in 2022, offering an additional incentive for companies to tackle cultural issues.
Covid-19 Related Investigations
The FCA, SFO and HMRC are all showing interest in key Covid-19 related issues, including market abuse, fraud arising from government Covid-19 loans and procurement and investigations into the fair treatment of vulnerable customers (following the FCA’s guidance on the topic in February 2021).[3]
Operational Resilience
Another key area for regulators will be addressing operational resilience post-Covid-19. Following the March 2021 FCA/PRA/Bank of England policy paper, March 2022 marks the first important deadline for firms to take comprehensive steps to identify vulnerabilities in their resilience, including carrying out mapping and scenario testing to the level of sophistication necessary to accurately identify important business services and setting impact tolerances. We expect this will lead to greater regulatory activity in holding firms to account.
Anti Money-Laundering and Sanctions
2021 marked the FCA’s first criminal conviction of Natwest, issued with a £264.8 million fine[4] for failures of its anti-money laundering systems. As at January, the regulator had 29 AML regulatory investigations afoot, two of which were criminal investigations, three civil probes, and six “dual-track”. Firms will need to remain vigilant and prioritise their AML and transaction monitoring systems and controls. Global attention on crypto-currencies is also attracting growing global regulatory interest.[5] The accelerated – and uncertain – expansion of anti-Russian sanctions following the invasion of Ukraine will require sharp and intelligent action from firms, with the Office of Financial Sanctions Implementation and the FCA ready to act on missteps. Firms with a presence in the US or EU will need to be particularly careful given the divergence in restrictive measures.
The Expansion of ESG
Enforcement authorities are sharpening their focus on ESG issues. Regulators are particularly alive to the risks of “green-washing” whereby firms exaggerate green credentials, misleading consumers and hindering meaningful climate action. With greater regulatory scrutiny (including from the FCA, Financial Reporting Council, the UK Government’s Green Technical Advisory Group and the Advertising Standards Agency), firms will be held to greater accountability in improving and marketing their ESG performance and driving positive change through their actions and investments.[6]
Data
With an exponential increase in reliance on technology, the threats to cybersecurity and data privacy remains acute, including in light of rising geopolitical tensions. Companies face greater compliance obligations as they continue to adapt to the GDPR and national data regulations and will need to be alive to the importance of demonstrating their cybersecurity and data protection plans along with greater scrutiny from the ICO and, if a regulated firm, by the FCA and PRA.
To discuss further, do not hesitate to reach out to the Pallas Investigations Team:
